Automotive repair shop management isn’t all about the cars. Sure, there’s plenty of work on the shop floor. But strategic auto repair shop owners know there’s more to profitability than manual labor.
The number of new cars on the road is decreasing. Auto sales took a 4% dip early in the first couple of months of 2019 coupled with a peak in delinquent car loans. One possible explanation is that drivers seem more likely to opt for ridesharing as a cheaper alternative to car ownership.
How does that affect your auto shop?
With fewer new cars on the road (and potentially fewer drivers overall), auto body shop profitability comes down to three things.
- Maintaining your current customer base
- Expanding your customer base
- Boosting your profit margin
The first two are all about marketing. The third is a little more difficult. You can’t gouge customers without destroying your shop’s reputation. And if you compete on cost, you’ll struggle to make ends meet.
Which is why we created this quick guide. If you’re looking to maximize your body shop profit margin, read on.
How profitable are auto repair shops?
Unfortunately, there’s no easy way to answer that question. Average profitability depends on your location, target customers and key service offerings.
An oil change shop on the low-income side of town is going to make very different money from an upscale, imports-only repair shop right next to the dealership.
Understanding your profit margin
The first actionable step to boosting profitability is to determine how profitable you are now—including exactly where that profit comes from.
Profit margin is calculated based on your net income and your revenue. (Or your gross income and revenue if you prefer to calculate the gross number. We recommend relying primarily on net profit margin for gauging the performance of your shop.)
Profit margin = ((Revenue – Expenses)/Revenue) * 100
The result will be a percentage that reflects how much of your revenue is actually profit. The higher that percentage, the more you get to keep of every dollar you charge your customers.
Two common ways to boost profit margin are to increase customer costs or increase sales. But there’s a third, more strategic way.
The best ways to improve profit margin
Yes, you can charge more or sell more, but the best strategic approach to increasing your profit margin is to lower expenses.
Lower expenses allow you to maintain current pricing for customers, which they will almost certainly appreciate. And selling more is always good. But marketing to gain additional customers is a long-term process.
If you’re looking for ways to grow your auto shop profit margin NOW, stick with these 4 tips.
1. Always comparison shop auto parts
It’s easy to fall into habits. Once you find a few auto parts suppliers you like, you’ll gravitate toward ordering exclusively from them. And while that makes sense for some jobs, it’s also a good idea to regularly comparison shop.
If you can find the same part for a fraction of the cost somewhere else, that’s good for you and good for your customer. And if you pass all the savings on to the customer, that opens the door for some strategic upselling.
2. Upsell (but only selectively)
Auto shops get a bad rap for upselling. Unfortunately, some customers are going to assume any additional suggestions you make are unnecessary attempts to squeeze more money out of them.
But if you use tip #1 to keep their out-of-pocket expenses lower, you put yourself in a position to offer additional services without making them feel like you’re a vampire.
3. Revisit overhead expenses periodically
It would take a lot of time to audit all of these all at once, so we suggest doing it throughout the year. For example, you might take a closer look at your ISP in the first quarter, then comparison shop merchant services in Q2, and so on.
Don’t just shop on price. Shop on value. If you can get the same services at the same quality at a lower price, there you go. Your expenses go down and your profit margin goes up.
4. Encourage customer loyalty
Customer loyalty programs aren’t just for grocery stores and sandwich shops. Auto repair shops can reward repeat customers, too—and they should.
There are a lot of ways to structure a customer loyalty program for an auto repair shop. The exact structure doesn’t matter as long as customers feel like they’re getting something for their loyalty. While a free oil change after 10 would certainly be enticing, random discounts for consistent customers would also do the trick.
Take a look at your customer base and make an educated guess. What do you think they’d appreciate the most? The more loyal they are, the more likely they are to keep coming back… and to trust you when you suggest additional services.
KEEP READING: The 2019 Automotive Benchmark Report.